After reporting second-quarter results last week, some investors fled from shares of Whole Foods Market
True, Whole Foods' net income dropped 11%, although sales increased 11.6% to $1.5 billion in the quarter. The company's profit took a hit as it accelerated store openings, with preopening and relocation costs coming out to $15.6 million, or $0.07 per share. (Also note that the Easter holiday positively affected this quarter this year, as opposed to next quarter.)
We all already knew that this was going to be an important year for Whole Foods as it steps up its competitive plans, so panic related to the earnings report, which included costs related to aggressively opening new stores, seems shortsighted to me. In the press announcement, Whole Foods' John Mackey said some of the new locations are "incredibly exciting stores that will allow us to redefine the marketplace and further differentiate our shopping experience from other food retailers." It seems to me that at this juncture, becoming complacent and boosting profits for a couple of quarters would be far worse for the retailer's long-term strategy and leadership positioning.
These are trying times for Whole Foods, although management seems to view this as a challenge that will make it stronger, while many investors seem to view the current climate in a far more negative light. Whole Foods not only has to compete with wholly organic rivals like the small independents and outfits like Trader Joe's (although in the conference call, management pointed out that Whole Foods has co-existed fine with TJ's), but it's also increasingly competing with traditional retailers like Wal-Mart
In addition to increasing its store openings, Whole Foods wants to acquire organic supermarket rival Wild Oats
Considering management's strong track record and philosophy that sets it apart from wannabe rivals, I believe Whole Foods Market can rise to the challenges at hand as it seeks to widen its lead and prepare itself well for the long haul. Right now, Whole Foods may look increasingly inexpensive, historically uncharacteristic of this stock. But that reduced price also comes with another drag -- a whole lot of negative sentiment amongst some investors.
Fill your cart with some related Foolishness:
- Read about Whole Foods' new fair-trade program.
- Whole Foods last quarter was pretty wild.
- Some Fools weren't so wild about Whole Foods over the last couple of months.